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Not European Style: There is an Option Company With Bad Reputation Can Take Control Over Electronic Excise Marks

During a scheduled meeting of the Investment and Entrepreneurship Council of the State Fiscal Service (DFS) of Ukraine the acting head of DFS Miroslav Prodan pointed that the bill No. 6545-1 on the electronic excise marks for excisable goods has “extremely high priority”.

At the same time, the proposed “Automated system for controlling the circulation of excisable goods” is significantly different from the system being introduced in the EU member states in 2019. Excessive lobbying efforts of supporters of the bill (they propose to introduce the new system right in 2018) impose fears among foreign investors who invested billions of dollars in the areas subjected to the excise control. Even experts of the Leading Scientific and Expert Department of the Verkhovna Rada of Ukraine have clearly stated that “there are doubts regarding arguments in favor of the bill”.

You will need to declare every day

The Ministry of Finance of Ukraine offered explanations of the main principles of functioning and objectives of the introduction of electronic excise marking. “The project proposes registration of bills and invoices of excisable goods to be made in an electronic form to save time. The requirements of producers, importers and wholesalers to report to the authorities monthly about production or sales turnover of alcohol, alcoholic beverages and tobacco products will be revoked as the automated control system for control of circulation of excisable goods will provide the required circulation information of excisable products to the appropriate authority bodies.”

Business does not share this kind of optimism. For instance, the head of the Department of Business Competition of the Federation of Employers of Ukraine Olexandr Yavorsky believes that “the bill will not only significantly increase the burden on honest taxpayers, but instead of the purposed goals will cause an increase of shadow market turnover of excisable products.” He points that the automation of the system for controlling the circulation of excisable goods will live only on paper as the functioning of “the automated system consists in manual submitting of data into 15 separate fields of an excise tax document to be submitted on the day of sale/transfer of the excisable goods.

And therefore the Ministry of Finance of Ukraine proposes to “make it easer” for business to report daily with a lot of data instead of monthly reporting.

The CEO of the Ukrainian Association of Tobacco Manufacturers “Ukrtyutyun” Valentina Khomenko believes that “such a complicated procedure will create additional obstacles for business and submitting of that large amount of information will lead to errors. Moreover, a system failure in operation of the register of excise documents can paralyze the market of excisable goods for a while.”

Further, according to Olexandr Yavorsky, “In the event of failures in the system that the state must maintain it will be business who will be fined for that. It violates the declared policy of the government and can make the business climate in the country even worse.”

That way honest taxpayers will experience more administrative burden while the shadow market will remain without any control of that kind of “automated” system.

Paper marks will remain in tact

“The Bill No. 6545-1 does not waive paper excise stamps. Excise stamps will continue to confirm the fact of paid taxes, said Olexandr Yavorsky about the “updated” system.

The Ministry of Finance tries to clarify the situation: “The bill specifies that marks should necessarily not be paper. The bill proposes to revise the definition that excise marks are obligatory documents of strict accounting. There should be only the statement that the marks are specials ones to confirm the payment of the tax. Therefore the marks may both remain paper or be placed with gluing or printing.”

“The uncertainty of the future form of excise marks to be placed on packaging of excise goods can lead to a long break of production in order to implement the required changes”, said the Director of the Department of Business Competition of the Federation of Employers of Ukraine. It means, if the excise marking is being revoked, but is being replaced, there will be logical question about the price of the new excise mark and who will have to pay for it.

The excise mark: free or not?

“The bill proposes to issue excise marks to producers and importers free of charge (according to the current legislation, business is obliged to purchase the marks). Cancellation of payment requirements is a goodwill act for the business, as the business believes it is very risky if the excise marks will cost even more after the introduction of the new automated control system because of the bill”, said Valentina Khomenko.

At the same time, she clarifies that there is no guarantee that the fee for the marks will not be reestablished in the text of the bill during the second readings.

The State Fiscal Service and the Ministry of Finance confirm that “payment for the marks for producers and importers will be canceled according to the bill. Assumed that financing of producing and issuance of the excise marks will be provided from the state budget.”

Nevertheless, the draft state budget for 2018 does not have any financing to secure the proper functioning of the automated system and to produce and service the excise marks.

Because of this situation, it seems that the initiators of the bill are keen to introduce a very simple scheme: to increase the cost of the “updated” excise marks explaining it with the argument of better protection level and fight against counterfeiting and illegal import.

However, the general experience of previous years revealed that simplification of the excise marks (when QR codes and holograms were removed from the marks) does not impact on the level of illegal trade of excisable goods. Increase of the excise marks cost is beneficial to the illegal producers of excisable goods, as the price of legal products will also go up.

Brazilian-style corruption approaches Ukraine?

The state authorities have not disclose any information about companies intended to supply the automated control systems and security elements.

The Ministry of Economic Development owns the State Enterprise “Poligrafkombinat Ukraina” (the only producer of excise marks in Ukraine) and believes that the decision to be made does not intend to involve the company as “the mentioned bill is being developed by the Ministry of Finance.”

The PR service of DFS explains that “the question regarding a prospective supplier of the required electronic system will be considered only after establishing of a regulatory basis that will enable the introduction and functioning of the automated system for controlling the circulation of excisable goods through a tender.”

But there are doubt about any tender as the bill considers only a prospective single supplier. And it will rather be SICPA. DFS, the Ministry of Finance and the MERT officially report that they have not heard of any scandals in other countries connected to the company. Though there are a lot of publications on the Internet.

Representatives of Ukrtyutyun are more frank. “We know from the media about the scandal in Brazil, where several officials of the Brazilian Federal Tax Agency and the State Mint have been accused of receiving a bribe from SICPA for signing a billion contract for a system for tracking beer and soft drinks production.

Experiences of using SICPA products were not that univocal in Albania, Malaysia, Morocco, Turkey, the Philippines, etc. The media pointed on the inefficiency and high cost of the SICPA products, and also suspected the company of encouraging officials to promote the system of the company,” stated the Association.

A recent investigation of Ukrainska Pravda revealed that the cost of implementation and maintenance of the SICPA system might reach USD 200 million (that is about UAH 5.2 billion) per year. The promotion activities of the company already know for their corruption scandals abroad should attract attention of the National Anti-Corruption Bureau. On the other hand, Ukrainian integration promoters may be interested to know why some officials promote the introduction of the system so persistently in Ukraine while the system contradicts the model that is being implemented in the European Union.

Oleg Zinchenko

Based on materials of RBK Ukraine